Dodo Australia is being investigated by the The Australian Communications and Media Authority (ACMA) after it breached the Telecommunications Act for its handling of customer complaints.
The inquiry was launched following advice from the Telecommunications Ombudsman (TIO) which highlighted a surge in customer complaints about the company's dispute resolution process.
Dodo failed to act on the breach following an order by the ACMA in September last year.
ACMA chairman Chris Chapman said Dodo will be fined if it does not comply with the order.
"ACMA is using its formal enforcement powers in order to ensure that customers of Dodo are offered the same level of consumer protection as customers of other telecommunications providers," Chapman said.
"ACMA still considers that Dodo has a sufficient way to go before it will become fully compliant with the Complaint Handling and Billing Codes, which are the important consumer protections we're interested in restoring."
The ACMA knocked back an appeal by Dodo in January this year.
The investigation was launched under section 121 of the Telecommunications Act.